Canada Mortgage and Housing Corp. has raised mortgage insurance premiums for the first time since the 1990s, and signalled more hikes could be on the way. Effective May 1st, CMHC Purchase (owner occupied 1 – 4 unit) mortgage insurance premiums will increase by approximately 15%, on average, for all loan-to-value ranges.
The increases, which will apply to policies that are obtained from May 1 onward, amount to about 15 per cent on average. The move was quickly copied by rival mortgage insurer Genworth MI Canada Inc. The increase applies to mortgage loan insurance premiums for owner-occupied, self-employed and one-to-4 unit rental properties, including low-ratio refinance premiums. This does not apply to mortgages currently insured by CMHC, said the agency.
Mortgage insurance compensates lenders, including banks, when the mortgage borrower defaults. Federally regulated lenders are required to obtain the insurance for loans where the borrower has a down payment of less than 20 per cent. Lenders are technically responsible for the premiums, but in practice those are passed along to borrowers.
|
Loan-to-Value Ratio |
Standard Premium (Current) |
Standard Premium (Effective May 1st, 2014) |
| Up to and including 65% |
0.50% |
0.60% |
| Up to and including 75% |
0.65% |
0.75% |
| Up to and including 80% |
1.00% |
1.25% |
| Up to and including 85% |
1.75% |
1.80% |
| Up to and including 90% |
2.00% |
2.40% |
| Up to and including 95% |
2.75% |
3.15% |
| 90.01% to 95% – Non-Traditional Down Payment |
2.90% |
3.35% |
Finn Poschmann, vice president of research at the C.D. Howe Institute, said CMHC had not been charging enough to cover its risks in the past, and the increase is a good move.
“The impact will be trivial for the 80 to 85 per cent loan-to-value range,” he said. “For buyers in the 95 per cent loan-to-value range, typically first-time buyers, the changes mean a significant pop to closing costs, in the neighbourhood of $1,500. In centres like the [Greater Toronto Area] or Vancouver, the typical hit will be a lot more.” (Mortgage insurance premiums can be amortized over the length of the mortgage, rather than paid up front at closing.)
“This will make life more difficult for high LTV first-time home buyers in the big centres,” Mr. Poschmann said. “Not huge, but certainly an incentive, on the margin, to get an offer accepted and a mortgage application filed before May 1.” 
CMHC’s two private-sector rivals – Genworth MI Canada, and Canada Guaranty – told Ottawa late last year they were frustrated by CMHC’s static pricing. They argued that higher capital requirements were hurting their profits, and said they would normally raise their prices in response, but felt hamstrung because CMHC is by far the biggest player in the sector. They have traditionally copied CMHC’s pricing.
“The higher premiums reflect CMHC’s higher capital targets” said Steven Mennill, CMHC’s vice-president of insurance operations, in a statement. “CMHC’s capital holdings reduce Canadian taxpayers’ exposure to the housing market and contribute to the long-term stability of the financial system.
“This is not designed to affect housing market activity,” said Steven Mennill, CMHC’s vice-president of insurance operations.